* Better weather forecasting could change force majeure
* Directors could face more pressure to manage climate risks
By David Fogarty, Climate Change Correspondent, Asia
SINGAPORE, Feb 25 Worsening weather and better
forecasting methods could push the mining sector to change force
majeure provisions in supply contracts and sharpen how blame is
allotted when storms or floods disrupt regular business.
Climate scientists predict global warming will trigger
greater extremes of weather such as more intense droughts,
cyclones and bushfires. For miners and other resource firms that
means more disruption to coal, iron, bauxite and gold
operations, but many weather events are foreseeable.
Recent deadly floods and cyclones in Australia occurred
during the monsoon season that meteorologists said months in
advance would be above average because of the strong La Nina
weather pattern that usually brings heavy rains and storms to he
country's north and east.
"If it is true that some of these floods were foreseeable,
there is going to be an argument whether that was in fact a
force beyond the expectation of either party," said Robert
Milbourne, a mining and resources lawyer for global law firm
That meant a rethink of contract provisions under force
majeure, which is defined as a force greater than the parties
had contemplated and allows for suspension or termination of
obligations during an unforeseen event.
"Going forward it is critical that people rethink the terms
of force majeure contracts. In my view, it needs to be
considered, at least for commodity contracts, a commercial
term," Milbourne, a former senior counsel for Brazilian miner
Vale, told an industry seminar in Singapore on Friday.
Milbourne, based in flood-hit Queensland state in Australia,
pointed to the abundance of private weather forecasters as well
as services from the government bureau of meteorology that
companies can use to better predict bad weather and impacts on
their operations and staff.
Yet not all companies were using these services, placing
them at greater risk of disruption and loss of revenue, he said.
He said if extreme weather events become more foreseeable,
that could drive changes to the way contracts define
responsibility under force majeure provisions of suspension,
termination as well as allocation of goods and services for
"If you had a termination event, once you get your mines
back up and running, you are going to sell it (commodity) at the
"But if you simply have a suspension you have to deliver at
that pre-event price.
"To me that is a $1-billion question for the Queensland
economy and it hasn't really been adequately discussed," he
said. The recent floods led to 16 coal mines in Queensland
covering total annual capacity of 94.3 million tonnes to declare
full or partial force majeure.
"This is really a commercial term, that everybody should be
more aware of, the variations in how force majeure can be
Allocation was another and a disaster could mean a company
being able to deliver only some of its goods or services.
"You get to choose if you're the service provider who gets
that good or service. And that is an incredible financial power,
who gets it, who doesn't.
"Most contracts never address that issue and it really has
not been thought about by most commercial parties.
"Rather than allowing the mining or service provider to have
that discretion, it is a simple thing you can do putting in a
contract to allow for priority allocation."
More extreme weather events also had implications for
directors and regulators, such as legal consequences of
foreseeable bad weather.
"If severe weather is more foreseeable, then directors are
going to be charged with more obligation to prepare accordingly.
These are not acts of god, these are things that people need to
understand can happen, are happening and almost certainly are
going to happen again."
(Editing by Clarence Fernandez)